Friday, April 4, 2008

Fitch Downgrades MBIA and The Earth Still Turns

Rain all day here. It has been like 20 hours of rain. At least it is not snow! For those that may think that the end of the world is not at hand, I would advise you that the boy band "New Kids on the Block" are reuniting and going on tour. Surely this is a harbinger of the end!

Jobs Report -Much Stronger Than Anticipated
What you need to know about the current market atmosphere is that there is a severe amount of self delusion being done. Today's jobs report is a perfect example. Consensus was for a drop of 60-70,000. The number came in a bit worse at negative 80,000 with reductions in previous months numbers as well. Now the higher number was surely a bad thing right? Well, not so fast. About 5 seconds after the report was released there was already a new consensus view that the market was expecting a jobs lost number closer to negative 120-150,ooo so in fact -80k was stronger than expected!

If you are sufficiently motivated, you can pull up the premarket articles and compare it with the post report articles. Moving the goalposts has long been a wall street special, but this 5 minute rework stuff is really something. I imagine if the number came in at -120k the talking heads would have said they expected 1 million jobs lost, so this report was wonderful news. Whatever. Mish has a great wrap up of the finer details of the jobs number.

Fitch Downgrades MBIA and The Earth Still Turns
I had come in from the laboratory at work today and I punched up the Yahoo page, hit the Yahoo Finance section, and I was terrified when I saw the news:
Fitch Cuts MBIA's Rating to "AA"
Friday April 4, 3:12 pm ET By Stephen Bernard, AP Business Writer
Fitch Cuts Financial Strength Rating of Bond Insurer MBIA to "AA" From "AAA"

NEW YORK (AP) -- Credit rating agency Fitch Ratings said Friday it cut the critical financial strength rating of MBIA Inc. because the bond insurer does not have enough spare capital to warrant a top-notch rating.

Now you must remember just a little while back there was serious debate about whether the loss of the vaunted "AAA" rating would cause a "systemic crisis" that could engulf the whole world in flames. I was pretty scared about that possibility, so I gingerly looked out the window of the office. It was still raining. I made sure that the water was not turning to steam from the firestorm engulfing the planet, but everything seemed ok. I heard no screams, and I took a walk through the hallways to see if anyone was behaving in a panic. I saw nothing out of the ordinary. After about 20 minutes to make sure the fabric of the universe was still intact, I checked out some reaction to the news.

Within 5 minutes (minute men of wall street?) the MBI CFO had this statement:
"We respectfully disagree with Fitch's conclusions," C. Edward Chaplin, MBIA's chief financial officer

Well did anyone expect the guy to say "We acknowledge we are screwed, sell our stock"? I checked the stock price, and it was only down about 4-5%. It was about 20 minutes later that the accepted line was that this was, of course, priced into the stock. A little later the validity of the Fitch rating was even called into question. Anyways, the point being is that nothing bad happened. Things moved on. Just like things would have moved on if BSC had gone boom.

The monoline insurer story is a good one that highlights the massaged reality under way. When Fitch and Moody's reaffirmed the "AAA" a while back, those ratings were solid and well researched. Now that Fitch has made the obvious downgrade, the Fitch rating system is not worth paying attention too. I bet it would be if they changed their minds though!

This event sets up Moody's and S&P for a decision. All rational analysis points to a loss of the "AAA" rating, and has for some time. Fitch has made the downgrade. The other two firms can either follow suit or reaffirm their "AAA" ratings. The obvious danger of keeping their ratings at "AAA" is if MBI goes bust, and Fitch has a downgrade on the books, the two ratings agencies stand to lose all credibility. On the other hand, a reaffirmation will probably keep Fitch out of new business (who wants a true report?) so an increase in business could there for the taking. Next week should be interesting indeed.

Washington Mutual Alert
When a daily chart looks like this:

And the move is on big volume (68 million shares vs. 48 million average daily volume) it usually means something. Perhaps the FED was bored after a weekend off and needs to bailout another bank on Sunday. WM is in some kind of trouble, and I think by Monday there is going to be some kind of coordinated effort to do something. It's too big to fail!

Friday Entertainment Blogging
First up a car video! This is the part of the film "Christine" where Arnie learns that the car is indeed supernatural and can repair itself:

Rock blogging anyone?

Megadeth with a perfect song for the times "Foreclosure of a Dream". Written about farms being lost a while back, but certainly applicable to now:

Old school? You want old school? Try a little Styx with "Too Much Time on my Hands":

Staying old school, Toto with "Rosanna":

Hall and Oats with the classic and awesome "Maneater". Great saxophone!:

I get to do one heavy one. AC/DC with "Who Made Who" featured in the film "Maximum Overdrive", another Stephen King work:

Have a good night.


Anonymous said...

Side Note: My brother just made a personal visit to the Northwest Territorial Mint and there was very little silver available for purchase. And by that I mean he didn't even make a purchase as there was nothing there we were looking to buy. Seriously there is something wrong with supply when a mints shop doesn't stock what it mints. There was a 6 week waiting period for their orders and shipments.



Anonymous said...

G there are a ton of sliver bars on E-bay, that's where I sold some of mine @21+. I got a lot better price for them there then the stuff I sold to Kitco after expenses.

Don't know what to say about the markets, hope spring eternal and it's all priced in. I added to my short, gold and treasuries funds last week. We'll see, may have made a mistake but you pays your money and take your chances in this casino.

Weather was great here today after raining all day yesterday. I got some more turnips, carrots, cabbage, and spinach in the dirt after the markets closed. Out to the farm tomorrow and get some potatoes planted out there. I'm sure glad the weekend is here, no markets to worry about.


Anonymous said...


That's not the point. My brother made a physical visit to purchase in person to take possession with cash and walk away with it in hand. When a mint doesn't have what advertised on their site then something is up.

Of course Ebay and some other coin or metals websites are going to have it. There is always some yutz selling theirs somewhere or online.

I am only bringing it to everyone's attention that a MINT WAS FRESH OUT.


PS: Have a good weekend guys and gals.

Anonymous said...

There is always some yutz selling theirs somewhere or online.

G, I'm not sure but I think you just called me a Yutz.


Anonymous said...

hahaha nah...


Anonymous said...